Joint Venture (JV)

Equity Joint Ventures
There are two types of joint ventures - Equity Joint Ventures and Cooperative Joint Ventures. The Equity Joint Venture is the older type, which provides less flexibility. An Equity Joint Venture always takes the form of a limited liability company. This shields the personal property and wealth of the responsible individuals from corporate loss.
The allocation of profits is the most significant difference between Equity Joint Ventures and Cooperative Joint Ventures. In Equity Joint Ventures, the ratio of capital contributions made by the partners determines how profits are allocated. If one party contributes 40% of the total capital investment, they will receive 40% of total profits.
Most manufacturers prefer Equity Joint Ventures as an investment vehicle. Before making a decision which type of joint venture to choose, the purpose of the investment must be clear.

Cooperative joint ventures
Cooperative Joint Ventures offer more flexibility. They can be organized either as a limited liability company or as a non-legal person, in which the partners are subject to unlimited liability and thus entirely liable for any losses the joint venture may incur. Most Cooperative Joint Ventures are established as limited liability companies.
Unlike Equity Joint Ventures, Cooperative Joint Ventures allow for profits to be allocated according to the partners' discretion. One party may recover its investment through an accelerated repayment structure, and the other party may become the owner of the joint venture's assets after termination of the joint venture.

The legal system in China and the business climate are changing in favor of Wholly Foreign Owned Enterprises and the restructuring of joint ventures. Joint ventures can be restructured into WFOEs. In another scenario, the Chinese side may be transformed into a "silent partner" without significant decision-making powers by reducing their equity stake. To change the equity structure, the foreign investor may contribute additional capital without the Chinese partner increasing their original investment.
The Ministry of Foreign Trade and Economic Cooperation must approve any type of equity change. There are a few sensitive industries, in which 100% foreign ownership is not permitted and the Chinese partner must be the majority holder.